Pyrethrum in Papua New Guinea

Pyrethrum produces a daisy-like flower that is used to make a natural insecticide. It grows best at high-altitude locations in the equatorial tropics, including in Papua New Guinea (PNG) and East Africa, and in some temperate-climate locations, such as Tasmania, Australia.

The active ingredient, pyrethrin, is extracted from dried pyrethrum flowers and used to make insecticides for household, agriculture, public health and food industry uses. These include aerosols, sprays, pet shampoo and mosquito coils. Pyrethrum is valued because it is highly effective at repelling or killing a broad range of insects, but is not toxic to mammals, including humans, and breaks down quickly in sunlight, leaving no residues.

Pyrethrum thrives at very high altitudes in the PNG highlands and flower production rises steeply with increasing altitude. Production of pyrethrum is weakly seasonal, being slightly higher in September–March and lower in April–August.

Adoption and history

Pyrethrum plants were first introduced into PNG in 1938. A number of other introductions were made in the 1950s, with plants from Kenya in 1957 forming the basis for selection of planting material in PNG. Agronomic research commenced at Aiyura in Eastern Highlands Province in 1961, but it was quickly found that the station (1600 m altitude) was too low for pyrethrum production. A new research station was established in 1966 at Tambul in Western Highlands Province (2300 m) and the pyrethrum selection program was moved there. The current germplasm collection is maintained at the Taluma Research Station on the Sirunki Plateau in Enga Province.

A processing facility was established in 1964 by Stafford Allen Ltd (PNG) at Kagamuga near Mount Hagen in Western Highlands Province. The enterprise was not profitable and the Australian Administration purchased the facility in 1973 through the company Kagamuga Natural Products Pty Ltd. The factory operated for another 20 years, but closed in 1994. The plant has a capacity to process 420 tonnes of dried flower per year.

Distribution of production and planting

All crop production was done by villagers and pyrethrum was usually interplanted among sweet potato and other crops. The Department of Agriculture, Stock and Fisheries purchased dried flowers from growers. In the late 1960s production was encouraged in many places throughout the highlands, including the Lagaip, Kandep, Wabag and Wapenamanda areas of Enga Province; the Tambul area of Western Highlands Province; the
Nipa, Margarima, Ialibu and upper Mendi areas of Southern Highlands Province; the Kerowagi, Gumine and Gembogl areas of Simbu Province; and the Okapa, Henganofi and Lufa areas of Eastern Highlands Province.

Pyrethrum was initially grown by villagers at altitudes as low as 1800 m, but within a few years the producing areas shrank to a limited number of very high altitude locations where the crop was most productive. By the early 1970s much of the production was concentrated in the Laiagam area (Enga Province), with significant amounts also grown in the Tambul and Gembogl areas. In 1974 an estimated 22 300 villagers grew pyrethrum. By the late 1970s production was confined to a narrow very high altitude band, mostly in Enga Province (96–99%), and the high-altitude upper Nebilyer Valley in Western Highlands Province.

Levels of production

During the period 1965 to 1993, between 200 tonnes and 400 tonnes of dried flowers were purchased per year, with a peak of just under 600 tonnes in 1967. The volume of pyrethrum extract exported followed the pattern of flower purchases. The pyrethrum processing factory closed in 1994 and no flowers were purchased between 1995 and 1999.

In 1995, the Enga provincial government, concerned about the lack of cash-earning opportunities for villagers in high-altitude parts of the province, formed the Enga Pyrethrum Company to revive the industry. The company initially operated erratically but was revived in 1999 when the company took possession of the Kagamuga processing plant near Mount Hagen. Because pyrethrum was no longer being grown by villagers, it was necessary to multiply and distribute planting material again. This commenced in 1999 and dried flowers were purchased from 2000 onwards. In 2003–2006 the Enga Pyrethrum Company produced pyrethrum extract which it exported to the United States. The volume of exports has been small compared with volumes in the mid 1960s to early 1990s.

Processing, exporters and markets

One of the most important issues for regeneration of the PNG pyrethrum industry is to ensure that production takes place only at high altitudes (2400–2800 m) so that growers achieve the highest possible yields and the best returns on their labour.

Botanical Resources Australia Pty Ltd, a company based in Hobart, Australia, has signed an agreement with the Enga Government to import PNG’s pyrethrum extract from 2006 to 2008 with an option to extend this arrangement beyond 2008. This company is one of the largest pyrethrum producers in the world and has supplied about 40% of global natural pyrethrum products in recent years.

Enga Pyrethrum Company paid K1.50/kg for dried flowers in 2006 (K2/kg delivered to the Kagamuga factory). This was a much lower price in real terms than was paid in the past. For example, in 1989–1993, the price received by growers was K1.50/kg. However, the kina now has much less purchasing power than in the 1980s and early 1990s because of depreciation of the currency and inflation. At current prices, growers are receiving a gross payment of about K2 per day’s labour input. With such a low return to labour, production may not return to the levels experienced from the mid 1960s to the early 1990s. The PNG pyrethrum industry may become viable again but this will depend on improved productivity by the growers and the factory producing a reliable supply of good quality product for the export market.

Vanilla in Papua New Guinea

Vanilla is used as a natural food and drink flavouring and as an ingredient in perfume. There are two commercial types of vanilla – Bourbon (Vanilla planifolia) and Tahitian (V. tahitensis). Both are grown in Papua New Guinea (PNG). Bourbon vanilla is higher yielding, contains more vanillin and has a wider market. Tahitian vanilla needs a shorter period to induce flowering and is thus suited to a wider range of environmental conditions.

Vanilla Planifolia Flower


Vanilla is successfully grown from sea level to 600 m altitude, although it bears at over 1400 m in PNG. The daily temperature range for its optimal growth is 21–32 °C, with an average around 27 °C. Annual rainfall should be in the range 1700–2500 mm and evenly distributed throughout the year. However, two drier months are required to slow vegetative growth and induce flowering. Areas that do not have this dry season are not suitable for vanilla. The crop requires well-drained soils that are preferably deep and fertile and rich in organic matter. The crop’s environmental requirements significantly limit the locations in which vanilla will flower. In PNG, extensive planting has been undertaken in locations where there is no regular dry season. These plantings are not likely to be successful.

Vanilla occupies a very small world niche market. Over the last 20 years, world consumption has varied between 1800 and 3000 tonnes, with production varying between 1200 and 4000 tonnes. This small market is characterised by extreme price fluctuations, made up of high price peaks and prolonged troughs of relatively low prices. Prices have been particularly sensitive to events in Madagascar, which produces 60–75% of world vanilla. Recent vanilla price fluctuations have been extreme. A severe cyclone that disrupted production in Madagascar in early 2000 triggered a rapid rise in world vanilla prices, which reached more than US$200/kg by the end of 2000. For three years, farmers throughout the vanilla-growing world earned unheard-of returns and responded accordingly. Farmers worldwide began feverishly planting and rehabilitating vanilla. By early 2004, the production from these increased plantings was entering a market that had contracted due to extremely high prices. By July 2004 the inevitable price collapse had begun. Prices have continued to fall since then and were about US$20/kg in mid 2007.

Vanilla Green Fruits

Adoption and history

Vanilla is a very recent cash crop in PNG. The PNG Spice Industry Board believes around 50 000 people were involved in the vanilla industry at the end of 2003. Five years earlier only a few hundred households were growing vanilla. Such meteoric industry growth is unprecedented in PNG agriculture.

The crop was first introduced to PNG in the 1960s at the Lowlands Agricultural Experiment Station at Keravat, East New Britain Province. At about the same time, plantings were made in the Wosera area of East Sepik Province. The original Wosera plantings were mainly of the Tahitian variety and were subsequently abandoned.

The foundations of today’s industry were laid in 1993, when Allan Bird (Bangui Bio Products Ltd) planted vanilla on a large block near Maprik in East Sepik Province. He encouraged smallholders around him to also plant. This provided the critical mass upon which a substantial smallholder-based industry could quickly develop once the right price incentives existed.

Nowhere in the world was the response to the huge increase in world vanilla prices as spectacular as in PNG. A combination of factors explains the PNG vanilla phenomenon:

  • PNG vanilla farmers had not experienced the previous periods of low prices and expected the high prices to continue in the future.
  • The declining value of the kina compared with the US dollar significantly increased the kina price received by PNG growers. The grower price increased 1300% over a two-year period to reach more than K700/kg.
  • Environmental conditions in parts of East Sepik Province proved ideal for vanilla production.
  • The establishment of the Bangui Bio Products Ltd plantings at Maprik had given surrounding smallholders experience in growing and producing vanilla.
  • Vanilla proved v ery attractive to villagers because it does not demand large areas of land to produce a good income.

Distribution of production and planting

Around 50–75% of PNG vanilla comes from East Sepik Province, with production concentrated in the Maprik, Dreikikir and Wosera areas. Other major producing provinces are Central, Morobe, East New Britain and Madang. Vanilla is now planted extensively in all the lowland and island provinces. While the main production areas of East Sepik Province provide ideal conditions to grow vanilla, the effect of climate was not taken into account in the rush to join the 2000 boom in the development of the industry. Many areas in which vanilla has been planted in PNG are much more humid than the vanilla-producing areas of Madagascar, Indonesia and Tonga. These locations are likely to prove unsuitable, particularly for the Bourbon variety.

Levels of production

The annual production and export of vanilla in PNG increased rapidly from about one tonne in 1997 to an estimated 200 tonnes by 2003. Within six years PNG had become the third largest producer in the world (after Madagascar and Indonesia), contributing about 10% of world production in 2003–2004. PNG production declined rapidly after 2004.

Bank of PNG data indicate that the export value of vanilla was K102 million in 2003 and K50 million in 2004, dropping to K3 million in 2005. However, these figures are probably lower than actual exports because of vanilla smuggled across the border to Indonesian Papua.

Processing, exporters and markets

The distinctive flavour and fragrance of good quality vanilla is developed by a slow curing process that is labour intensive and takes three to six months to complete. In PNG, villagers do their own curing. In other major vanilla-producing countries, curing is undertaken by specialist businesses and not by farmers. In PNG, grower curing has helped spread the benefits of the industry widely and has allowed for the participation of people in the most isolated of locations, but it has seriously lowered the quality of PNG vanilla. Many growers have little understanding of the slow and demanding requirements for successful curing. They tend to confuse the complex fermentation of vanilla curing with a drying process that they are familiar with for cocoa and copra. A necessary condition for producing quality vanilla is that the beans be harvested fully ripe. Beans that are immature when harvested will have low vanillin content and will quickly go mouldy regardless of how well they are cured.

The lack of knowledge of processing requirements is a consequence of the rapid expansion of the industry – and the lack of extension support provided. During the price boom, the practice of some traders and exporters of paying the same price regardless of quality provided little incentive to growers to learn and adopt correct curing techniques.

Vanilla marketing in PNG is disorderly and largely unregulated. At the end of 2004, 70 vanilla exporters were licensed with the Spice Industry Board. However, only 45 of these actually recorded exports and the ten largest exporters accounted for more than 90% of shipments. Several of these larger companies are representatives of overseas vanilla and spice companies, although most exporters are PNG-based companies. Some exporters apply strict standards and pay significant price premiums for quality. These exporters conduct their own farmer training programs. The results of these efforts in terms of quality have been outstanding and provide an example of how the industry can progress.

Vanilla buying is conducted over a three-month period, starting in February. All vanilla purchases are on a cash-on-delivery basis. Most East Sepik growers bring their cured bean to Wewak for sale. Buying is also conducted at Maprik, either by agents, middlemen or by exporters themselves. For security reasons large volumes are often purchased on-farm. Larger companies fund purchases from their own resources. Those linked to overseas spice companies have been financed by their overseas parent companies. Small companies found it difficult to generate a timely cash flow and many are no longer operating.

In the short term, villagers benefited from the competition created by the large number of exporters. The intense competition helped increase buying prices. However, many traders had little understanding of the product and were willing to purchase inferior quality vanilla at inflated prices. This has had a harmful effect on the quality of PNG vanilla and its overall reputation in the world market. The United States, France, Germany and Indonesia have been the main markets for PNG vanilla.

Future prospects

The vanilla industry that existed in PNG at the beginning of 2004 was based on unrealistic expectations and was not sustainable. By July 2004 prices had fallen to K125–140/kg for Grade 1 vanilla. Growers were starting to realise that poor quality (low vanillin content, over-dried, off-flavour and mouldy) product is unmarketable.

K70–80/kg is a reasonable price to plan for over the next few years. This price is unacceptably low for many present growers, particularly in light of the unrealistic expectations that were created by the boom. These growers will choose to stop producing. Some growers who have already invested in a vanilla plantation will continue to produce.

Vanilla’s high unit value and non-perishability (when cured) make it particularly attractive to remote locations with poor or non-existent road access. Vanilla fits well into PNG agricultural systems and is particularly compatible with cocoa in East Sepik Province. Cocoa provides a regular low cash return throughout much of the year and vanilla gives a significant return once a year. Cocoa, with appropriate pruning, can even be used as a support tree for vanilla.

A sustainable PNG vanilla industry could have an initial annual production base of 40–50 tonnes. This would constitute a minor but significant export industry, equivalent to rubber. Like rubber, the vanilla industry is well suited to isolated, poor, lowland areas. The industry could earn high income windfalls similar to the 2000–2004 boom, but these will be infrequent exceptions rather than the norm. The PNG vanilla industry must also make the transition to centralised curing if it is to have a sustainable future.

Even at a price of K70/kg, vanilla provides a good return to labour and land, in suitable growing areas. Farm management models indicate that 0.5 ha of vanilla earns an average of nearly K5000 per year, with returns to labour of over K50 per person-day, provided that growers produce quality bean. This is considerably higher than for most other cash crops in PNG.

National Agricultural Research Institute

The letters in NARI are the initials of the National Agricultural Research Institute. The PEOPLE symbolise those included in the mandate of NARI such as farmers, researchers, extension agents, partners, NGOs etc, backed with BLUE to encompass the sky and the macro environment. The LEAF symbolises crops, backed with GREEN to depict the crop environment. The PIG and CHICKEN heads symbolise livestock. The RED background portrays the toil and sweat of the people.

National Agricultural Research Institute (NARI) was established by an Act of National Parliament of Papua New Guinea (PNG) in July 1996 as a public funded, statutory research organization, to conduct and foster applied and adaptive research into:

  • any branch of biological, physical and natural sciences related to agriculture;
  • cultural and socioeconomic aspects of the agricultural sector, especially of the smallholder agriculture;
  • matters relating to rural development and of relevance to PNG.

Besides, NARI is responsible for providing technical, analytical, diagnostic and advisory services and up-to-date information to the agriculture sector in PNG.

The Institute’s purpose (strategic objective) is to accomplish enhanced productivity, efficiency, stability and sustainability of the smallholder agriculture sector in the country so as to contribute to the improved welfare of rural families and communities who depend wholly or partly on agriculture for their livelihoods. This is intended to be accomplished through NARI’s mission of promoting innovative agricultural development in PNG through scientific research, knowledge creation and information exchange.

Following its establishment in 1996 and launch in 1997, the Institute was under the Ministry of Agriculture and Livestock but was brought under the Ministry of Higher Education, Research, Science and Technology in 2002.

In a short span of over a decade, NARI has emerged as a vibrant, dynamic and robust institution of high relevance to development in PNG and in the Pacific. In any one single year, NARI undertakes over 50 research and development projects; most of which are immediate and high impact projects for various areas and targets. These initiatives are undertaken in partnership with stakeholders including the farming community.

NARI has released 28 technologies to the agriculture stakeholders of PNG. Among them are improved crop varieties, information packages, pest and disease control strategies, improved methods of food crop farming, resource management initiatives, livestock development practices, and alternative crops. With the headquarters in Lae, Morobe province, NARI has five regional centres which are strategically located throughout PNG, according to the ecological zones.

The Momase Regional Centre is in Bubia; the Islands Regional Centre is located at Keravat, East New Britain Province; the Southern Regional Centre is at Laloki, Central Province; and the Highlands Regional Centres are at Aiyura, Eastern Highlands, and Tambul in the Western Highlands Province (with a sub-station in Kandep, Enga Province).

NARI has four main programmes, viz:

  • Agricultural Systems
  • Enabling Environment
  • Information and Knowledge
  • Institutional Management and Development

In order to achieve its institutional objective of creating positive development impacts, especially in the context of smallholder farming and rural communities in Papua New Guinea, NARI has adopted the ‘Agricultural Research For Development’ paradigm, or AR4D, an emerging global concept of linking research with development for impacts at farmer level.

Core of this new concept is the notion of “farmer first’ or being responsive to the real and perceived needs of the various farming communities in their biophysical and socio-economic and cultural environments.

NARI has thus recognised that it will require collective action at different levels within and outside of the sector to achieve rural development. NARI has long-term development priorities which are given in the Strategy and Results Framework and the immediate programme priorities in the Strategic Programme Implementation Plan. These plans form an integral part of the government’s Vision 2050, Medium Term Development Strategy and the National Agriculture Development Plan at national level, and will also be consistent with long term strategic plans designed by the national government. They are implemented through annual plans.

Contact Information:

NARI Headquarter, Sir Alkan Tololo Research Centre, PO Box 1445, Lae, Morobe Province, Papua New Guinea.

Phone: (675) 478 4000/1445/1446

Fax: (675) 475 1450

Email: [email protected] or [email protected]

Website: www.nari.org.pg

Coffee in Papua New Guinea

Coffee is one of the most important cash crops in Papua New Guinea (PNG), with export revenues consistently topping US$100 million per annum. Total production for 2016 was nearly 1.2 million 60-kg bags (70,260 tonnes). Globally, PNG ranked 18th in the world for coffee production for 2016/2017 (USDA and FAS 2017). Most of the coffee produced in PNG is the Arabica species, the main Arabica coffee – growing provinces being, in descending order of importance, Eastern Highlands, Jiwaka, Western Highlands, Morobe, Simbu, East Sepik, Southern Highlands, Enga, Madang, Oro, Sandaun (formerly West Sepik), Milne Bay, Central and Gulf (CIC 2016:3). Importantly, coffee is the mainstay of the local economy, especially in the main Arabica-growing provinces of the highlands. In the period 1990–1995 Arabica provided 33 per cent of all income from agricultural activities — more cash income to rural villagers than any other commodity. This situation is likely to hold true today, although fresh food production has increased greatly since that data were recorded. The coffee sector in PNG mainly comprises smallholders (approximately 400,000) and it is estimated that 3 million people in the country are dependent on coffee income.

Coffee Plant

Two types of coffee are cultivated in PNG. Arabica coffee, the most important, is usually grown between 700 m and 2050 m altitude, but occasionally as low as 100 m and as high as 2400 m. Robusta coffee, considerably less important, is usually grown between sea level and 550 m. Both types of coffee are grown in environments where average rainfall is 1700–5000 mm per year.

The production of Arabica coffee is highly seasonal. The main season varies a little between years and between locations, but is generally in the period May to September and particularly in June, July and August. A study of Robusta coffee found no definite harvesting season in the Gazelle Peninsula area, East New Britain Province. However, in the Milne Bay area further from the equator, the main harvest occurs between May and August with the peak in June–July.

Adoption and history

Coffee was first introduced to PNG in 1873 and was growing in the Rabaul Botanical Garden by 1890. Between about 1900 and 1940, several plantations were established in Central Province and around Wau in Morobe Province and by villagers in the Sangara area of Oro Province. However, coffee remained an insignificant cash crop until the early 1950s, when commercial production of Arabica coffee commenced on small expatriate-owned plantations and in villages in the central highlands. Before 1960, most of the Arabica coffee exported from PNG was grown in highland regions of Morobe Province, particularly in the Wau, Finschhafen, Kaiapit and Wasu areas, but during the early 1960s a rapid expansion of smallholder coffee production occurred in Western Highlands, Simbu and Eastern Highlands provinces. This expansion occurred as a result of extension activities, the absence of alternative cash-earning opportunities, high export prices for coffee, the construction of the Highlands Highway in the mid 1960s, and the example provided by the plantation developments.

Robusta coffee had been grown successfully in Oro and Milne Bay provinces, and in parts of Central, East New Britain, Madang and East Sepik provinces. However, production grew slowly in comparison to the rapid expansion that occurred in the highlands. Robusta coffee has always attracted significantly lower prices than Arabica.

The Australian Administration was forced to slow the rate of growth of coffee production in PNG to meet quotas imposed by the 1962 International Coffee Agreement. Measures taken included the prohibition
of further estate development; a ban on planting coffee on new agricultural leases, including settlement schemes; and reduction of extension and promotional activities in the smallholder sector. Despite these measures, smallholder production continued to increase at an average rate of 28% per year between 1961 and 1968. Most of this expansion occurred in Eastern Highlands, Western Highlands and Simbu provinces, where it is known that many Australian agricultural extension officers chose to quietly ignore the bans on assisting villagers to plant coffee.

Following the abandonment of the quota requirements of the International Coffee Agreement in December 1972, the PNG Government attempted to reinvigorate coffee extension and promotion activities, particularly in the less developed areas of the country, such as Southern Highlands Province. It is possible that the renewed extension and promotion efforts resulted in the significant increase in smallholder production that occurred in the 1970s, although other factors, such as high export prices, were more important.

In the early 1980s the government sponsored the development of smallholder coffee blocks. These were parcels of land removed from customary tenure and owned and operated by families or groups of families, separate from village plantings. The blocks had from 5 ha to 29 ha under coffee and were often managed by a professional organisation. The Coffee Industry Corporation (CIC) estimated that there were 636 coffee blocks in 2007. The current standard of management is highly variable, with many blocks producing poorly.

Distribution of production and planting

Western Highlands and Eastern Highlands provinces continue to dominate coffee production in PNG, contributing about 82% of the total quantity of coffee produced in 2006. Other provinces that contributed to coffee production in 2006 were Morobe, Simbu, Enga and Southern Highlands. Robusta production has traditionally been dominated by East Sepik Province, which increased its output steadily during the 1990s, mainly as a result of new plantings in the Wosera and Maprik areas. However, production in East Sepik Province has fallen significantly since 2002 as a result of increased cocoa and vanilla plantings. Historically, Arabica coffee has accounted for about 95% of production, with Robusta the remaining 5%, but Robusta production has declined in recent years to less than 1% of total production.

There is little current information concerning the area of land planted to coffee in PNG. According to a 1999 estimate, approximately 70 000 ha were planted to coffee, of which 57 000 ha were smallholder plantings, with the remainder in the plantation and block sectors. In 2007, according to CIC figures, plantations had 4400 ha under coffee and the blocks an estimated 12 000 ha. Based on production from 2004 to 2006 and average yields, it is estimated there is 70 000–85 000 ha of smallholder coffee and 12 000–15 000 ha of plantation and block coffee.

Levels of production

Coffee production, measured by the quantity exported, increased rapidly between 1960 and 1980, but the rate of increase has slowed since 1980. There has been virtually no new coffee plantation development since 1961 and the plantation sector has declined since the mid 1980s. There were 107 coffee plantations operating in 1977, but only 33 in 2007. Hence the significant increase in production over the past 40 years has come entirely from the smallholder sector. Between 1985 and 2005 smallholder production doubled and its contribution to overall production increased from 65% to 85%. Conversely, production from plantations and blocks halved over this period and their combined contribution decreased from 35% to 15%.

Since 1978 the total annual production of coffee has exceeded 40 000 tonnes. Production peaked at 84 000 tonnes in 1989 and again in 1998. The variation in annual production that has occurred since 1980 is mostly explained by fluctuations in the export price and annual rainfall. Smallholder producers are very sensitive to returns on their labour and so are highly responsive to changes in price. Growth in production has been limited since 2000 by low prices (until 2004), high rainfall (in 2005 which resulted in a poor harvest in 2006) and deteriorating road access to many producing areas.

Survey data from village smallholders and plantations allows yields per hectare to be estimated. For the period 1960 to 1995, the average yield of smallholder Arabica coffee was about 950 kg/ha of green bean, while average plantation yields were almost twice this at 1650 kg/ha. There are significant differences between the highest and lowest reported yields, and where the same producers have been surveyed over a number of years, yields may vary considerably between years. On plantations, most of the variation can be attributed to differences in weather conditions between years, rather than greater or lesser attention to harvesting, as is probably the case with smallholders. However, yields on plantations appear to have decreased significantly in recent years; over the period 2000 to 2006, the average yield for plantations and blocks was 600 kg/ha green bean. This is probably more the result of changes in management than of climate.

There is an often-stated belief that coffee has a biennial bearing pattern in PNG (that is, if yields are high in one year, they are lower the following year). However, surveys by the Queensland Department of Primary Industries and by CIC over a number of years do not support this theory. Much published and unpublished data exist on coffee yields under experimental conditions, mostly from Aiyura in Eastern Highlands Province, but these are not reviewed here. Experimental yields range from less than 1 t/ha to more than 4 t/ha of green bean, with means in the range 1.5–2.5 t/ha.

Processing, exporters and markets

The Coffee Industry Corporation registered 17 exporters, 103 processors (58 ‘dry’ factories and 45 ‘wet’ factories) and 5 manufacturers, and estimated there were 5000 itinerant buyers, in PNG in 2007.

The majority of exporters and factories are located in Western Highlands and Eastern Highlands provinces. Most smallholder coffee growers process their raw coffee fruit (‘cherry’) to parchment stage before selling it either directly to factories or, more commonly, to itinerant buyers. A limited amount of coffee is sold to buyers or factories in cherry form. From time to time, attempts are made to ban cherry purchases to prevent theft of cherry from trees.

In 2006/07, six exporters accounted for 85% of the coffee exported from PNG: PNG Coffee Exports (21% of the market), New Guinea Highlands Coffee Exports (19%), Niugini Coffee, Tea and Spice (17%), Monpi Coffee (13%), Kongo (8%) and Pacific Trading (7%). In 2006, PNG exported coffee to 29 countries, with 89% of the exports going to just four: Germany (40%), Australia (20%), the United States (20%) and Japan (9%). Minor destinations included Malaysia, New Zealand, South Korea and South Africa.

Future prospects

The PNG coffee industry, despite its problems, has maintained a reasonable degree of international competitiveness. During the early 2000s world coffee prices were at historical lows, but the devaluation of the kina helped maintain kina returns to PNG growers. In 2005, in association with adverse weather conditions in Brazil and an upturn in the normal coffee price cycle, Arabica prices reached their highest level since 1998. Prices have remained firm since. The average export price for PNG coffee in 2006 was 40% higher than in 2004. The World Bank predicts that coffee prices will remain relatively stable until 2010 and will then decline until 2015.

Fundamental changes in the world coffee market will have major implications for the future of the PNG industry. Over the last decade or so the world coffee industry has boomed at the retail level but remained stagnant at the producer level. In the early 1990s the retail value of the world coffee industry was about US$30 billion; it now exceeds US$70 billion, but the growers’ share of profits has fallen from 40% to 10%. The future success of exporting countries, such as PNG, depends on being able to adjust to this new reality.

In addition, there has been a huge increase in the output of low-quality Robusta coffee from Vietnam and medium-quality Arabica coffee from Brazil. The abundant availability of low-priced coffee has brought about a permanent shift in demand. If PNG’s coffee industry is to remain viable in the longer term it must produce more, better-quality coffee. This can be done through a number of mechanisms including grower groups where members are committed to producing higher grade coffee and who are rewarded with higher prices for their products.

The PNG Government has set a production target of 90 000 tonnes by 2016. Expansion to these levels is likely to be constrained by limited areas of suitable land in the highlands and ongoing pressure on land; low world prices; inadequate road access for many producers; and possibly by increasing rainfall associated with global climate change. A potentially serious insect pest, coffee berry borer, is present in Papua (Indonesian New Guinea) and only urgent quarantine action along the border will prevent it moving into PNG in future years. If this pest becomes established in the PNG highlands it is likely to have a severe effect on coffee production.

The most important issue for the PNG coffee industry is to improve the quality from existing plantings. If it can succeed in doing this, it has a bright future and coffee will continue to make a substantial contribution to highlanders’ living standards.

Cocoa in Papua New Guinea

Cocoa is the third most important source of village agricultural income, after coffee and fresh food. In the early to mid 1990s, an estimated 850 000 people (27% of the rural population) lived in households where cash income was earned from selling cocoa. Cocoa generated an average of K218 million per year in export income from 2004 to 2006, which was 14% of the value of agricultural exports in this period.

Cocoa

In PNG, cocoa is grown up to 800 m altitude where annual rainfall ranges from 1800 mm to over 5000 mm. Seasonality data indicate that more cocoa is produced between May and July than in other months, but the pattern varies considerably from place to place.

Adoption and history

Cocoa was introduced to PNG by German settlers around 1900. Commercial cocoa production developed slowly despite a series of subsidies and concessions introduced by the Australian Government during the 1920s. Low copra prices during the Depression also encouraged plantation owners to diversify into cocoa production. The industry was severely affected by World War II, when about two-thirds of PNG’s cocoa trees were destroyed.

Following the war, global demand for cocoa increased substantially and the Department of Agriculture, Stock and Fisheries promoted expansion of the industry. Copra plantation owners were encouraged to interplant cocoa with coconut, and soldier settlement cocoa estates (for Australian ex-servicemen) and smallholder blocks were established on the Gazelle Peninsula in East New Britain Province, around Lae in Morobe Province and around Popondetta in Oro Province. These efforts resulted in a major expansion of the industry: the total area planted to cocoa increased from about 3700 ha in 1951/521 to around 49 500 ha in 1965/66. Total production increased from 485 tonnes to around 15 500 tonnes over the same period. The expansion occurred mostly in the plantation sector, which accounted for about 95% of all cocoa produced in the year 1965/66. However, after 1965 smallholder cocoa production increased significantly and by 1979 had surpassed plantation production. This expansion in smallholder production was concentrated in East New Britain and Bougainville provinces, and these two provinces have continued to dominate the smallholder sector.

Distribution of production and planting

Most PNG cocoa is produced in the north-east lowlands of the Gazelle Peninsula in East New Britain Province and on north-east Bougainville Island. Other provinces that contributed to cocoa production in 2006 were East Sepik, Madang, New Ireland, Sandaun, West New Britain and Morobe.

In 2006, smallholders accounted for 90% of national cocoa production, with the plantation sector contributing the remainder. This reflects the continued decline of the plantation sector over the past 30 years.

There are no accurate estimates of the land area currently planted to cocoa in PNG. Based on production of 40 500 tonnes from smallholders and 4500 tonnes from plantations in 2006, and average yields of 0.25 tonnes/ha and 0.5 tonnes/ha respectively, the area devoted to smallholder cocoa is probably about 160 000 ha and for plantations, 9000 ha. The area of plantation cocoa in 1973 was 55 000 ha.

Levels of production

The expansion of the plantation sector in the post-war period, coupled with the later increase in smallholder production, saw the overall production of cocoa, measured as total exports, reach 35 500 tonnes in 1975. Production then declined in the late 1970s and remained stagnant until the mid 1980s. Smallholder production increased steadily during this period and the decline in production after 1975 occurred in the plantation sector. Factors influencing the decline of the plantation sector included decreases in both yield and production on formerly expatriate-owned plantations that had been returned to local villagers; uncertainties associated with the Land Acquisition Act; and the increasing age of cocoa trees. The continued growth of the smallholder sector, coupled with a slight recovery in the plantation sector, saw exports reach 46 000 tonnes in 1989. During the 1970s and 1980s, Bougainville produced about half of PNG’s cocoa. The Bougainville civil war of 1989–1997 caused the closure of plantations and a marked decline in smallholder activity in that province. Production there fell from 18 600 tonnes in 1989, to 7500 tonnes in 1990, and remained in the range 3000–5000 tonnes from 1991 until 2001. National cocoa exports were affected by the decline in Bougainville production, but increased production in East New Britain from 1989 onwards reduced the impact and that province replaced Bougainville as the leading cocoa producer.

National production remained relatively low throughout the early to mid 1990s. Three factors contributed to depressed levels of production during this period. First was the continued slump in production in Bougainville Province, particularly in the plantation sector where production had essentially fallen to zero. Second was the decline in the plantation sector in general, due to rising costs of production associated with the devaluation of the kina and increasing wages, and also to land disputes on the Gazelle Peninsula. Third was the volcanic eruptions near Rabaul in 1994, and the drought in 1997, both of which adversely affected production.

Exports increased again from 1999 and reached a peak of 49 000 tonnes in 2005. This recovery was associated with smallholders’ response to higher export prices and increased production in Bougainville Province. The recovery in Bougainville was greatly assisted by aid-funded rehabilitation programs and road rehabilitation. Among the smaller cocoa-growing provinces, production has increased in East Sepik, Sandaun and Madang provinces over the past decade. In contrast, it has declined in New Ireland, West New Britain, Manus, Oro, Milne Bay and Central provinces.

Mean smallholder yield of dried cocoa is typically 200–400 kg/ha, and up to 600 kg/ha. The Cocoa and Coconut Institute uses 250 kg/ha as a working average for smallholder yield. Mean yields on plantations are higher at 400–600 kg/ha and are as high as 1500 kg/ha on the best plantations. Much published and unpublished data exist on cocoa yields under experimental conditions, mostly from Keravat and Tavilo in East New Britain Province, but these are not reviewed here.

Most smallholder cocoa trees are more than eight years old and are characterised by a lack of pruning. A lack of maintenance of cocoa leads to a high incidence of pests and diseases and under-harvesting. There is considerable scope for increasing yield per hectare of smallholder cocoa through a number of relatively simple means without expanding plantings. These measures include pruning trees, shade management, and control of the most important pests and diseases.

Processing, exporters and markets

About 2500 cocoa dealers licensed to buy wet bean from producers were registered in PNG in 2003. Dealers process the bean (which involves fermentation and drying) and sell it to exporters. Around 5500 licensed fermentaries were operating throughout the country, with more than half in East New Britain Province and many in villages. More than twenty cocoa exporters were registered but not all were active. In 2005, Agmark Pacific was the major cocoa exporter, accounting for 70% of the market. The next largest exporters were Sepik Coastal Commodities (16%) and Outspan Limited (6%).

In 2006, about 27% of cocoa produced in PNG was exported to the United States, 17% to Belgium, 16% to Malaysia, 16% to Singapore, 11% to Indonesia, and smaller volumes to Thailand and Germany. The United States and Singapore have been the main export destinations for PNG cocoa since the early 1990s.

Future prospects

The very high prices of the late 1970s and early 1980s resulted in large increases in cocoa plantings worldwide followed by a huge increase in global production over the next decade. The creation of large cocoa stocks dominated the market for more than 10 years, leading to a price slump of unprecedented duration. PNG’s smallholder cocoa sector survived the prolonged depressed market essentially intact. A competitive marketing system and the low value of the kina guaranteed a modest regular income for growers that could not be provided by any alternative income source.

In 2002, when civil unrest began to affect Côte d’Ivoire production (the world’s largest cocoa exporter), prices began to move up sharply and have remained at reasonably firm levels since then. Medium-term prices will depend on the political developments in Côte d’Ivoire. In late 2007 the World Bank projected an average price of about US$1.90/kg during 2008 and slightly lower in 2009. Longer term real prices are then projected to decline slightly as supply increases more rapidly than demand. Even at these prices, PNG smallholders will receive a good return to labour for planting, maintaining and harvesting cocoa. However, whether these prices are sufficient to bring about investment in new cocoa plantings remains to be seen.

The PNG Government has set a target of 100 000 tonnes of cocoa exports by 2016. Land in suitable growing environments (fertile soil and rainfall less than 3500 mm/year) is limited. Hence significant expansion will have to come from higher yields per tree rather than an increase in the area devoted to cocoa plantings. Cocoa pod borer, a serious insect pest, has the potential to cause a severe reduction in PNG cocoa production, as it has in Indonesia, Malaysia and the Philippines. It appeared in the Keravat area in East New Britain in early 2006 and has spread to other locations on the Gazelle Peninsula and has been found elsewhere since then.

Further significant increases in export volume will depend on increasing smallholder yield per hectare. The best options for increasing the value of cocoa exports are through improving quality and entering into speciality niche markets.

Cocoa Board of Papua New Guinea

The Papua New Guinea (PNG) Cocoa Board was established by an act of Parliament to be responsible for the regulation and development of the cocoa industry in PNG. The PNG Cocoa Board also provides budgetary support to it’s two subsidiary institutes, the CCRI and CCEA to conduct research, and extension services required for the improvement and development of the industry.

Cocoa is the next most important crop with 22% of the value of major agricultural exports. About 16% (93,000) of all rural households produce 65% of the crop and the balance comes from plantations annually. It has an area of 116,000 hectares with 49,000 ha under estates and 66,000 ha under smallholder. Private exporting companies market all cocoa beans to overseas destinations. The Cocoa Industry board performs a regulatory function in terms of quality control, export licensing and fermentaries registration.

Annual cocoa earnings for the country averaged around K60 million up to 1984 when it declined more than 49% to around K33 million in 1993. A steady increase in cocoa earnings for the country was realised after 1994 thereon from K39 million to K85 million in 1998 as a result of improved prices and the evaluation and the subsequent flotation of the local currency, the Kina.

Cocoa’s contribution to agriculture exports accounted for an average of 18% between 1984 and 1991 reaching a peak of 21% in 1987. Since 1992 cocoa production has been on a decline coupled with relative prices, which are the major causes of decline in cocoa’s contribution to the total agriculture exports earnings, which dropped by 15% in 1994 to 8 percent. Thereafter in 1995 it has increased modestly by 10% to it’s current 18 percent.

Gross Domestic product of cocoa continued to decline from 2.9 percent in 1984 to 0.5 percent in 1993 and slight increase of 0.8 percent in 1994. This declining trend is attributed to an increase in the proportion of the mining and petroleum sector’s increased share of the GDP.

The cocoa industry in PNG is fully liberalised from growing through to pricing and exporting. The private exporters solely conduct marketing of cocoa. The cocoa Board’s roles and responsibilities under the Cocoa Act is limited to regulate, monitor, and promote the growing, processing, and marketing of cocoa, and to provide market intelligence for the benefit of those involved in the industry.

By 1999 there are about fifteen licensed cocoa exporters in the country who either sell their own cocoa or buy cocoa from smallholders as well as from the plantations for exports.

Until recently cocoa production in most provinces and been on a decline due to various reasons apart from the unrest on Bougainville and the natural disasters. The chief constraints faced by the cocoa farmers and the industry in general are considered to be as follows; poor infrastructure in road and marketing outlets, low world prices, lack of transport accessibility, lack of finance and no better options or alternatives from enterprises.

The sustainability and the future of the cocoa industry in PNG depend on three most important factor’s .These are (1) rehabilitation on Bougainville and other potential areas of the country, (2) various assistances by the Government and the industry, and (3) farmers response to international price movements.

The two main factors, expansion and rehabilitation and the forms of assistances provided by the Government if are accomplished, production is expected to increase by as much as 20-30 percent in the next five years. Rehabilitation programme presently undertaken on Bougainville may result in production increase by 7,000 to 8,000 tonnes by the turn of the century. It is anticipated that the impact of all forms of assistance provide under various schemes may result in total production increase to over 40,000tonnes in 1999 – 2000 cocoa years.

In lines with the Government policy to go into downstream processing of all its agriculture exports. the cocoa Board considering to go downstream, producing cocoa liquor and cocoa butter depending on the outcome of a feasibility study.

The Board expects that increase in production resulting from all the new initiatives undertaken so far will be used in the local plant, while at the same time sustaining and increasing the volume of bean exports.

website: www.cocoaboard.org.pg

Copra and Copra Oil in Papua New Guinea

Copra is an important source of village income. In the early to mid 1990s, an estimated 527 000 people (17% of the rural population) lived in households where cash was earned from selling copra. From 2004 to 2006 copra and copra oil generated average annual export earnings of K93 million; this was only 6% of the total value of agricultural exports in this period. Most of this amount (85%) was earned from copra oil exports.

Three economic products are derived from the nut of the coconut palm: copra, copra oil and copra meal. Although coconut will regenerate naturally from seed in coastal locations, almost all coconut palms in PNG have been planted by people. In PNG, coconut is grown in environments where mean annual rainfall ranges from 1000 mm to 6500 mm. It is cultivated from sea level to 1000 m altitude; however, the commercial cultivation of coconut is mostly restricted to coastal locations. Coconut normally bears all year round, but production falls significantly during droughts.

Adoption and history

Although the cultivation and use of coconut in PNG long predates European settlement, the commercial cultivation of coconut palms in PNG commenced in the 1880s, in the Gazelle Peninsula area of East New Britain Province. Coconut meat, dried to copra, was initially in demand for soap manufacture and later for margarine production. Plantation development expanded quickly throughout the New Guinea Islands Region because of high copra prices during World War I. Commercial coconut planting commenced in the coastal areas of Southern Region in 1907, after Australia took over the administration of Papua from the British Colonial Office.

The production and export of copra increased rapidly during the first decades of the twentieth century. Export volumes were recorded as 10 324 tonnes in 1909/10 from a planted area of 16 000 ha, 31 500 tonnes in 1921/22 and 91 500 tonnes in 1936/37. Copra was the most important export commodity from PNG during this period. In 1921/22 it contributed 90% of all exports. Copra production and export declined significantly during World War II due to very low prices and the disruption of trade and commerce. Production and exports returned to pre-war levels in the early 1950s when copra exports comprised around 70% of total exports. However, the relative importance of copra and copra oil exports has declined greatly since then. Until the late 1950s, most copra produced in PNG was grown on plantations. Smallholders produced an estimated 20% of copra in 1954/55.

From the 1950s the Australian Administration adopted policies to develop smallholder and village copra production. Increased extension activities resulted in the establishment of an estimated 75 000 ha of smallholder and village coconut palms between 1955 and 1965. Most of this development was on village land, not formal settlement schemes. Smallholders produced about 48 500 tonnes of copra in 1971, which was around 35% of national copra production. By 1975/76, smallholders contributed more than 40% of national production, a reflection of both the decline of the plantation sector and the expansion of the smallholder sector. By 1975/76 however, copra and copra oil comprised only 5% of PNG’s total exports. This decline in export share was primarily due to the development of the coffee, cocoa and mineral industries during the 1950s, 1960s and 1970s.

Distribution of production and planting

Smallholder copra production is dominated by East New Britain Province, which contributes around one quarter of total production. Other provinces that make significant contributions to smallholder production are Madang, New Ireland, Bougainville and West New Britain. Most plantation copra is produced in Madang and East New Britain provinces (particularly in the Gazelle Peninsula area). In 2005, East New Britain Province accounted for 46% of all copra produced and Madang Province 20%. Smaller amounts came from New Ireland, Bougainville and West New Britain provinces.

It was estimated in 1998 that coconut plantations covered approximately 53 000 ha and smallholder plantings about 128 000 ha. In a large proportion of these areas coconut is interplanted with cocoa, an innovation that was first pioneered in PNG in the 1950s and that increases overall economic productivity of land under coconut for both plantation and smallholder producers. Most coconut palms in PNG are of the ‘tall’ variety and many are now aged, which reduces productivity. Age is thought to be a greater problem in the plantation sector, where approximately half of coconut palms are 70–80 years old.

Levels of production

Since the 1970s, the smallholder sector has grown in importance relative to the plantation sector. In 1988, smallholders contributed around 70% of total production, and by 1998 this proportion had increased to 82%. The plantation sector has continued to be adversely affected by extreme fluctuations in world market prices and, more importantly, by the rising costs of inputs, particularly fuel and labour. The sector has also been constrained by investment uncertainty (particularly as a result of the Plantation Redistribution Scheme in the 1970s, which bought back plantation land from owners and returned it to the previous customary owners).

Smallholder producers are sensitive to variations in the export prices paid for copra and copra oil and this largely explains the peaks and troughs that have characterised PNG production levels from the 1970s to the 1990s. Very low prices between 1985 and 1995 saw copra production reach its lowest levels since the late 1940s (despite K35.4 million of government price assistance and stabilisation funding over the period 1990–95). However, price increases during the 1990s saw production increase again.

The marked decline in copra production in 1998, despite the fact that prices were still increasing, was associated with the opening of a new Copra Marketing Board copra oil mill in Madang. Since the 1960s, the proportion of copra being processed domestically into copra oil has steadily increased. By 1990, copra oil surpassed copra in total export value.

Copra production was also adversely affected by significant declines in export prices in 2000 and 2001. In 2002, copra production fell to its lowest level since 1947 and in 2003 copra production reached a historical low of less than 9000 tonnes. Deteriorating infrastructure and increasing transport costs, fewer purchasing depots, and a switch from exporting copra to processing it into oil within PNG have contributed to this decline.

Copra oil production fell in 2001, but recovered in 2003. In 2006, the value of copra oil exports (K60 million) was more than seven times that of copra exports (K8 million).

Copra meal, a low-value by-product of copra oil production, is exported for stockfeed. Copra meal exports averaged 14 000 tonnes/year during the 1990s, with an average value of K1.6 million/year.

Average smallholder yields are typically in the range 400–700 kg of copra/ha, with a mean of about 500 kg/ha. Like other export tree crops, plantation copra yields are higher than those for smallholders, with a range of 700–1000 kg/ha in nationwide surveys and an overall average of about 900 kg/ha.

Processing, exporters and markets

Copra production is labour intensive. It involves collecting fallen coconuts, de-husking and splitting them, and removing and drying the coconut meat. Nowhere in the world has coconut harvesting been mechanised. The Copra Marketing Board (CMB), which became the Kokonas Indastri Koporesen (KIK) in 2002, has always regulated the marketing and export of copra in PNG. The CMB enjoyed a monopoly over all aspects of the copra industry. However, in recent years KIK has issued a limited number of private sector export licences, mostly for copra oil.

Until recently, KIK purchased copra from growers at fixed prices at depots and sub-depots. However, between 2001 and 2005 a significant reduction in the number and geographic extent of active purchasing depots occurred, from 22 depots in 11 provinces in 2001, to 15 depots in 10 provinces in 2002, and 10 depots in 9 provinces in 2005, a reflection of the shift in copra purchasing activity from CMB/KIK to the copra oil mills. Most copra in the Islands Region is now purchased by Coconut Products in Rabaul. This change has disadvantaged smallholder producers who do not have access to the mills and who were previously serviced by CMB/KIK depots, which have now ceased purchasing.

Two large copra oil mills currently operate in PNG: Copra Oil Production Madang Ltd in Madang and Coconut Products at Toboi near Rabaul. The Toboi mill is over 50 years old and has been extensively refurbished. The Madang mill was set up by KIK, but later sold to a private company. In addition to these two mills, a number of very small operations produce copra oil using direct micro-expelling (DME) technology. The Middleton family operation on Karkar Island, Madang Province, produces high-quality copra oil that is used locally to make a number of products including soap, cosmetics and shampoo.

In 2001, 55% of the copra produced in PNG was exported to Europe, particularly to the United Kingdom and the Netherlands; 40% was exported to Japan; and 5% to Singapore. These countries were the major export destinations for PNG copra throughout the 1990s. In 2001 a major shift in the destination of PNG copra took place, with more going to Europe and less to Japan. In 2005, most copra was being exported to Germany (83%) and the remainder to Australia (8%), Singapore (7%), Solomon Islands and India. This shift in the destination of exports occurred at the same time as the rapid decline in copra export volumes, and fluctuations in the figures need to be viewed in that context. The main export destination for copra oil in 2005 was Australia, with Europe a minor destination. By 2008, most copra in PNG was being processed into copra oil and exported to Europe.

Future prospects

For many households, copra provides the only source of cash income, but the PNG copra industry is in crisis, with production falling sharply in recent years. Internationally, the PNG copra industry is at best only marginally competitive. Copra oil prices declined for several decades until 2001 when the price for copra increased and reached US$1130 per tonne in late 2007, the highest nominal price since 1984. Price increases have been brought about by structural changes in the world copra oil market. These have been driven by the diversion of other edible oils, particularly palm oil, away from their traditional uses into the rapidly expanding biofuel market. Nevertheless, the World Bank forecasts a significant fall in real copra oil prices through to 2015. When prices are poor, the comparatively low yields of PNG copra make it uncompetitive. The once vibrant trade in copra at the village level is now stifled by the closure of buying depots, a deterioration in roads and shipping services, increasing transport costs, and the absence of financial services to support copra purchases by private buyers.

The demand for copra is derived from the demand for copra oil and prices of the two products follow each other closely. Europe was the main buyer for copra. The European Union (EU) applied a zero tariff on oilseeds and meals (including copra), but a much higher tariff on vegetable oils (including copra oil). This resulted in a significant trade distortion that encouraged the importation of copra over copra oil and explains why the EU became the world’s largest importer of copra.

The World Trade Organization Uruguay Round led to a reduction of the tariff margin between copra crude oil and refined oil. Since then there has been a steady decrease in Europe’s copra crushing capacity and an increase in oil imports. The last Europe-based copra crushing operation (Walter Rau in Germany) closed in 2007 and there is no longer any market for copra in Europe. The copra market is now limited to buyers in Bangladesh, the Philippines and mills in other Pacific island countries (Fiji, Solomon Islands and Vanuatu). The increasing interest in copra from these countries is a reflection of supply problems facing their own industries rather than of growing international demand for copra. These markets, while not sustainable in the long term, provide PNG a few years breathing space to develop a copra industry that is based entirely on oil exports.

Beyond conventional copra and copra oil, some high-value coconut products offer better longer term prospects. These include virgin coconut oil, coconut cream, coconut timber and biofuel.

Agricultural Organizations in Papua New Guinea

National-level agencies

Numerous national-level government agencies have roles in agricultural and rural industries. Key factors in determining their effectiveness is whether they have the resources and institutional linkages with other agencies and all levels of government to perform their specified functions and whether they have competent directors, managers and staff. This section examines the most important organisations related to agriculture.

Department of Agriculture and Livestock

The functions of the national Department of Agriculture and Livestock (DAL) include providing policy advice and sector coordination relating to agriculture and livestock (including advice on the application of agricultural legislation, administered by statutory bodies); promoting agricultural development; assisting provincial governments with the provision of extension; and preparing and implementing appropriate investment programs for major commodities and livestock.

In the 1970s DAL lost responsibility for extension services when they became a provincial function. Export tree crops research was transferred to specialised research institutions in the mid 1980s. During the 1990s, remaining research and quarantine functions held by DAL were moved into separate institutions, and commodity boards and corporations were given greater independence. DAL’s role was narrowed, however, the department struggled to adapt to its new role and wasted resources in trying to regain some of its lost functions. A 2004 review of DAL by the Asian Development Bank (ADB) found that DAL was without clear agricultural sector roles and did not have the capacity to plan or develop policy. The review argued that a National Agriculture Development Plan (NADP) ‘owned’ by all the stakeholders, including rural village people, was essential if agriculture was to bring about economic and social change in PNG. But the review stated that DAL was ‘uncoordinated, was unsure of budget allocations and was poorly served by national and provincial financial information systems’, and was unable to develop or implement such a plan. DAL produced an NADP (2002–2012) which was approved in principle by the National Executive Council.

Department of National Planning and Monitoring

The Department of National Planning and Monitoring (DNPM) is responsible for national strategic development policy, development planning and preparation of the development budget, aid coordination, and monitoring and evaluation. DNPM evolved from a pre-Independence National Planning Office (NPO). DNPM was disbanded in 1985 and its tasks split between the Department of the Prime Minister and the Department of
Finance. The central planning and coordination functions and dominance of development activities previously carried out by the NPO disappeared during the next ten years. In 1995 these functions were included in a new DNPM, but the department has been reorganised four times in 10 years, which has created instability and lack of continuity. Part of the reorganisations involved the provincial and district coordination branch moving from DNPM to the Office of Rural Development, which caused the DNPM to lose touch with the provinces and resulted in the poor integration of agricultural policies into national development strategies. The role of DNPM also overlaps with a number of other departments, which causes confusion and inefficiency.

The Office of Rural Development

The Office of Rural Development (ORD) has the role of supporting provinces and districts in planning, implementing, monitoring and evaluating rural improvement programs. The ORD draws on funds from the Provincial Support Grant, the District Support Grant, the Social and Rural Development Program and the Targeted Community Development Program. ORD’s role includes overseeing the allocation and spending of K1 million of provincial and district support grants per MP per year, K500 000 of which can be spent at the discretion of the MP. Although the ORD is closer to the provinces and districts than the DNPM, it has been criticised for not collaborating sufficiently, or at all, with other government departments, the research organisations, or the universities, in the development of high quality district projects that can be supported by the MP’s grants. The 2004 ADB review argued that ‘projects submitted for funding… are not well designed, due to lack of skills in the provinces to support national members to formulate their projects’.

The funding of the districts (and provinces) is provided for under the Organic Law with decision making determined by the Joint District (and Provincial) Planning and Budgeting Priorities Committees, chaired by the MPs and comprising Local Level Government Area presidents and district managers. Spending is widely considered to be unduly controlled by the MPs. In 2006 a new District Services Improvement Program (DSIP) was set up to complement the establishment of District Treasuries and to improve service delivery at the district level. The DSIP includes funds for ‘agriculture’. However, confusion remains over which level of government is responsible for service provision. In addition, the amount of money provided does not cover the cost of even the most basic service provision (including agricultural extension) in most provinces.

National Agricultural Council

The National Agricultural Council (NAC) was established as a committee of national and provincial agriculture ministers, supported by an advisory council of national and provincial department and division heads. After the 1995 Organic Law reforms, its role changed to one of bringing together the chairs of the provincial agricultural committees (where they exist) and the provincial agricultural advisers and statutory body heads, with the national minister and the national secretary of DAL. The secretariat is provided by DAL. The mandate of the NAC is to review national research, training and skills building in agriculture and to report on this to the secretary of DAL. The full membership is large and unwieldy and lack of funds has meant the NAC rarely meets.

Agriculture Subcommittee of the Consultative Implementation and Monitoring Council

The Consultative Implementation and Monitoring Council (CIMC) was established by the National Executive Council and is chaired by the Minister for Planning and Implementation. The CIMC set up a number of sectoral committees, including the Agriculture Subcommittee, made up of representatives from the private sector commodity producers, civil society (including non-government organisations), DAL, DNPM and sectoral statutory bodies. The subcommittee operates independently of the government, under the direction of the CIMC. Its role is to ensure a dialogue between government, private enterprise and civil society. The subcommittee meets reasonably regularly. The ADB review suggested that, given the dormancy of the National Agricultural Council, the CIMC Agriculture Subcommittee should oversee the National Agriculture Development Plan and the agricultural sector program planning, budgeting and implementation, and monitoring and evaluation, for at present no body takes responsibility.

The Rural Industries Council and the PNG Growers’ Association

The Rural Industries Council (RIC) mainly represents larger organisations and agricultural industry companies, although it is endeavouring to extend its representation more effectively, especially to growers. The chair and deputy chair come from the largest agricultural industry companies in PNG. The RIC has 27 members, including a number of government departments and industry boards. It has an office in Port Moresby in association with the Institute of National Affairs.

A number of growers’ associations exist in PNG, representing villagers (and in some cases largeholders) involved mainly in cash cropping. The Smallholder Coffee Growers’ Association is the largest with around 14 000 members in 14 provinces. It is supported by the Coffee Industry Corporation (CIC) and has four members on CIC’s board. The Palm Oil Producers’ Association (POPA), on the other hand, is an association of large oil palm producers. Oil palm smallholders are represented by the Oil Palm Industry Corporation (OPIC). The PNG Growers’ Association was formed out of the Planters’ Association to bring together cocoa and copra growers. These organisations come together under the Rural Industries Council, which works to raise the profile of agriculture and give a stronger voice for policies to support the sector. Some branches of the growers’ associations conduct field days and training activities.

National Agriculture Quarantine and Inspection Authority

The National Agriculture Quarantine and Inspection Authority (NAQIA) was created out of DAL in 1997. Its mandate is to protect the animals, plants and fish in PNG from exotic pests, diseases and weeds. It is also responsible for facilitating trade through export and import risk analysis and quality assurance systems. The head office is in Port Moresby and NAQIA operates in 15 seaports, international airports and an international post office. It also maintains two animal and plant health laboratories to provide diagnostic and advisory services. Staff conduct meat inspections at five abattoirs.

The 2004 ADB report criticised NAQIA for charging high and unrealistic fees, overly restrictive rules imposed on the import of cultivars and seeds, and the slow issuing of import permits. However, the high risk that imported pests, diseases and exotic species could create severe economic damage to PNG’s agricultural production means an effective and efficient quarantine service is critical to the future of agriculture in PNG.

Fresh Produce Development Agency

The Fresh Produce Development Agency (FPDA) was established in 1989, with assistance from New Zealand Aid, to develop a competitive and sustainable fruit and vegetable industry. FPDA compiles information on prices and quantities of fruit and vegetables in the main markets, provides extension and training on production, marketing and post-harvest handling, establishes contacts between sellers and buyers, supplies certified seed potato, assists in village commercial food processing initiatives, and assists women to engage in fresh food marketing. FPDA has had an important role in the re-establishment of the potato industry following an outbreak of blight.

The 2004 ADB report suggested that FPDA needs to make greater attempts to sell its services to the industry in order to become independent of government funding. The report also recommended that FPDA make greater efforts to collaborate with the National Agricultural Research Institute and to work more with small and medium producers.

Livestock Development Corporation

The Livestock Development Corporation (LDC) is a self-financing organisation that is responsible for the control of the slaughter and processing of livestock for retail sale, for the encouragement of
the smallholder sector to increase the supply of poultry and breeding-age cattle, and the production of stockfeed. LDC has abattoirs in Central, Morobe and Eastern Highlands provinces. A fruit production project and a cashew nut nucleus estate project, both in Central Province, have been established using revenue from the abattoirs and from aid money.

However, the LDC board has recently been subject to numerous political appointments and its revenue depleted by excessive board and management spending. The Goroka piggery and the cashew nut projects are in financial difficulty and the abattoirs are said to be underfunded, poorly maintained and so far below public hygiene standards that they are in danger of closing. If these facilities close, all animals for slaughter will have to be transported to Ramu Agri-Industries’ modern abattoir at Gusap in the Markham Valley. A chronic shortage of breeding-age poultry, day-old chicks and cattle for commercial smallholders exists in PNG, but LDC has seemingly been unable to respond to this need. The future of the LDC is in doubt.

Spice Industry Board

The Spice Industry Board (SIB) is responsible for regulating and collecting data on spice production and marketing, including vanilla, cardamom, pepper and turmeric. The board maintains a small office within DAL in Port Moresby. It has seven members, six of whom, including the chairman, are appointed by the Minister of DAL. SIB is poorly resourced and staff struggle to maintain basic information about production and trade. Licences to export spices are issued by the board on DAL’s advice. Poor control over quality has recently damaged PNG’s reputation as a vanilla producer.

Rubber Board

A Rubber Board was established in the mid 1950s to regulate the export of rubber from PNG. The board is supposed to oversee inspections and hear appeals. It has five members, all appointed by the Minister of DAL. Considerable state investment has gone into rubber growing since the 1970s, but the schemes have been poorly managed by DAL and the Department of Lands. The privately run Doa Plantations Ltd owned by Galley Reach Holdings and the Fly River Rubber Cooperative in Western Province produce most of PNG’s rubber exports. An attempt to sell the government-owned Cape Rodney rubber factory in Central Province to private interests has been accompanied by alleged financial irregularity and a lack of transparency.

In late 2006, in an attempt to revitalise the rubber sector, an interim rubber board was formed to review the Rubber Act and to guide formation of a PNG Rubber Industry Corporation.

National Fisheries Authority

The National Fisheries Authority (NFA), established in 1998, is a non-commercial statutory authority owned by the government. The role of the NFA is to promote long-term sustainable development of PNG’s marine resources. This includes ensuring that catch levels are such that maximum sustainable yield is achieved. Other roles include protection of entire marine ecosystems, preservation of biodiversity, minimising pollution and supporting village fishers. Major fisheries are managed under a national fisheries plan and local fisheries are also controlled nationally. The NFA trains staff in the National Fisheries College at Kavieng, New Ireland Province. A major review and restructure in 2000 and 2001 created an efficient and effective body, but recent political appointments to the board and management have been quickly followed by allegations of excessive licensing and other forms of malpractice.

PNG Forest Authority

The Papua New Guinea Forest Authority (PNGFA) was formed in 1993 as a statutory corporation to manage the national forest sector. Because forestry has been declared an area of national interest, control over forests has not been decentralised to the provinces under the 1995 Organic Law reforms. PNGFA comprises the National Forestry Board (NFB) and the National Forest Service (NFS). The NFB is made up of representatives of a number of government departments, provincial governments, women, forest owners, the forest industry and NGOs. The NFS works in all provinces.

PNG forestry policies and practices have been the focus of controversy, argument and allegations of corruption for some time. The most important issues are resource acquisition, allocation of licences to logging operators who do not comply with key requirements (like sustainable harvesting), poor monitoring of harvests, exports and enforcement of requirements, and the identification of landowners and lack of concern for their best interests. Aid donors, especially the World Bank, have attempted to place conditions on programs to force the PNG Government to comply with logging laws and control the damage being done to PNG’s forest resources. Uncontrolled logging is leading to losses by forest-owning villagers and the national economy.

Agricultural research organisations and commodity boards

The International Food Policy Research Institute argues that every dollar invested in effective agricultural research results in a $6 increase in agricultural output and a $15 increase in economic growth. Effective agricultural research is vital to improve food security and cash income for rural Papua New Guineans. In the 1990s, the DAL research division was split into separate institutions and the commodity boards given greater powers. Almost all agricultural research in PNG is now conducted by several statutory research organisations. The most important are:

National Agricultural Research Institute

The National Agricultural Research Institute (NARI) was formed from the research division of DAL in 1997. It is a publicly funded, statutory research organisation that conducts applied and development-oriented research on food crops, emerging food crops, emerging cash crops, livestock, and resource management issues. The major targets are the smallholder, semi-subsistence, semi-commercial and commercial farmers. NARI manages six research stations: Keravat (East New Britain Province), Bubia and Labu (Morobe Province), Aiyura (Eastern Highlands Province), Laloki (Central Province) and Tambul (Western Highlands Province). Additionally, NARI owns the National Chemistry Laboratory and National Agricultural Insect Collection in Port Moresby, and has an office in Mount Hagen. NARI headquarters is at Bubia near Lae.

NARI has been well managed. It has had difficulty training and retaining high quality staff. Because NARI does not have access to funding from a levy on exports as do the export commodity-based research institutions, funding for capital equipment and maintenance are proportionately less than in other agencies. Aid projects, in particular the Australian Contribution to a National Agricultural Research System, have supported NARI for some years, but long-term sources need to be found to maintain an adequate income.

Coffee Industry Corporation

Before 1991, coffee growing and exporting was governed by the Coffee Industry Board based at Goroka. Research on coffee was conducted by the Coffee Research Institute (set up in 1986) at Aiyura and extension to growers was the responsibility of the Coffee Development Agency. This last body was created after coffee rust appeared in PNG in 1986. In August 1991, the three organisations merged into the largely self-financing Coffee Industry Corporation Ltd (CIC).

The CIC has a broad range of powers, including buying and selling coffee, setting prices, registering and controlling exports, setting quality standards and controlling credit worthiness and capacity of market participants. CIC is unusual in that it is established under the Companies Act, but has been granted specific regulatory functions and powers by parliament. In practice, the CIC only applies its regulatory functions to setting guidelines, implementing firm quality control, and approving export contracts (and contract prices). The marketing of coffee is left in the hands of private companies licensed by the corporation. There is a risk that the board could become involved in the international marketing of coffee, and it has the power to do so, but the only occasion when the former Coffee Industry Board used this power (in the early 1980s), it failed badly. That experience provides a strong deterrent to using the powers again. CIC now has two divisions: the Research & Grower Services Division (made up of the Coffee Research Institute and Extension Services Division) and the Industry Operations Division. The CIC is well resourced (from an 8 toea/kg levy on green coffee beans).

Problems facing the CIC are how to:

Cocoa and coconut institutions

The Cocoa Coconut Institute of Papua New Guinea (CCI) was formed in 2003 from the merger of the PNG Cocoa and Coconut Research Institute and PNG Cocoa and Coconut Extension Agency. CCI is owned jointly by two statutory bodies, the Cocoa Board of Papua New Guinea and Kokonas Indastri Koporesen (KIK), which fund the institute through levies on exports.

The Cocoa Board is responsible for the inspection of all export cocoa. It is funded by a K40/tonne levy on exported cocoa, some of which goes to supporting CCI. The board licenses around 5500 cocoa fermentaries
and 14 cocoa exporters. Price competition at all stages of the marketing chain has kept marketing margins low, to the benefit of growers. However, the board has suffered from ‘irregularities’ in management in recent years.

The CCI is responsible for all cocoa and coconut research, development and extension in PNG. CCI has two active research stations, one at Tavilo in East New Britain Province and the other, the Stewart Research Station, in Madang Province. At a third research station, in Bougainville Province, operations are temporarily suspended. CCI owns 3234 ha of cocoa in eight plantations and two hybrid seed gardens. The plantations and seed gardens generate a significant proportion of CCI income.

The Kokonas Indastri Koporesen, based in Port Moresby, evolved out of the privatisation of the Copra Marketing Board trading functions in 2002. KIK’s role is to contribute to policy and regulate the copra and coconut industry. Marketing is undertaken by the private sector, where an increasing proportion of exports is in the form of coconut oil, particularly from the Toboi mill in Rabaul. KIK provides some financial support for coconut research as well as funds for seed gardens. Growers feel strongly that KIK provides few benefits, while imposing high costs in the form of levies on producers. 17 The 2004 ADB report stated that it is ‘difficult to justify the existence of KIK’ and recommended that it be abolished.

KIK’s former coconut mill in Madang, set up in the 1990s at exorbitant cost and managed by subsidiary company PNG Coconut Commodities (PNGCC), was sold to a New Zealand company exploring biofuels.

Oil palm organisations

The oil palm industry is governed by a number of organisations: the Oil Palm Industry Corporation (OPIC), Papua New Guinea Oil Palm Research Association (OPRA), the Oil Palm Growers’ Association (OPGA), and the Papua New Guinea Palm Oil Producers’ Association (POPA).

OPIC was established in 1992, as part of a reform of the oil palm industry in response to grower frustration over low prices, a then unsatisfactory pricing formula and declining government services. OPIC is funded by a levy on sales of fruit, matched by the oil palm companies. International aid funding has also provided significant financial support to the corporation. Funding is expected to continue under a proposed World Bank smallholder agriculture project. OPIC’s main role is to provide extension services to smallholders in order to increase productivity, promote improved management, and enhance the wellbeing of producers. OPIC also liaises with government, the oil palm companies and other organisations involved in the industry. OPIC has five local planning committees, comprising representatives of smallholders, companies and the government, in five project areas.

OPRA is a non-profit research organisation with its headquarters at Dami Oil Palm Research Station in West New Britain Province, and another facility at Popondetta in Oro Province. OPRA was established by pooling research facilities of three companies 18 to bring together government, plantation companies and smallholders under a single research organisation. OPRA’s main areas of research include agronomy, entomology, smallholder studies, and plant pathology. OPRA is funded by a levy on production (50 toea/tonne of fresh fruit bunch for smallholders and 80 toea/tonne of fresh fruit bunch for plantations), government funding and research grants. OPRA also provides technical support and training to smallholders, extension officers and plantation company officers. OPRA’s research is highly regarded internationally.

POPA represents the joint interests of the milling companies. Each project area also has a growers’ association which represents the interests of smallholders to the companies, OPIC, OPRA, and national and provincial governments. The chair of each oil palm growers’ association sits on the board of OPIC. The extent of smallholder involvement in the associations varies between project areas and over time. At various times the associations have experienced problems with financial mismanagement resulting in members losing confidence in their organisations. For example, in 2000 the Hoskins growers’ association suffered a significant loss of members after the association’s funds were misappropriated. In Popondetta the association membership has been limited because the settlers believe that the organisation is dominated by local landowner interests. The distribution of financial benefits between the milling companies and the smallholders has been significantly adjusted in favour of smallholders in successive reviews in the 1990s and in 2000. However, smallholder advocates argue that the mills (or ‘nucleus estates’) have economic advantages over smallholders and the pricing formula fails to properly value customary land as well as heavily discounting smallholder labour.

Oil Palm in Papua New Guinea

Palm oil has been PNG’s most valuable agricultural export since 2000, when it overtook coffee in this role. Palm oil exports averaged K420
million per year from 2004 to 2006, which was 30% of the value of agricultural exports for that period. Oil palm production has expanded at a much greater rate than other export tree crops. However, a smaller proportion of the rural population is engaged in growing oil palm than for the other major export and domestically marketed crops. Approximately 130 000 settlers or villagers derived income from selling oil palm in 1995 (4% of the rural population). In 2007, the Oil Palm Research Association estimated that about 166 000 people (3% of the rural population) lived in households that produced oil palm. Many other people derive income directly or indirectly from the PNG oil palm industry, including those working on the nucleus estates.

Four economic products are derived from the fruit of the oil palm: crude palm oil, palm kernel oil, refined palm oil and palm kernel expellent. Of these, crude palm oil is the most significant in terms of export volume and value. Oil palm is grown exclusively in lowland locations, up to a maximum altitude of 200 m. It is cultivated in areas where mean annual rainfall ranges from 2000 mm to 4200 mm. The production of palm fruit is mildly seasonal in West New Britain Province, with about 60% of the crop harvested in January to June each year.

Adoption and history

Although oil palm has been grown in PNG since the 1920s, commercial development did not commence until 1967 with the establishment of a private sector/government joint venture at Hoskins in West New Britain Province (WNB). This is now the largest oil palm development in PNG. Other large projects are at Bialla (WNB), Popondetta (Oro Province), Gurney and Sagarai (Milne Bay Province), along the coast south-east of Kavieng (New Ireland Province) and in the Ramu and Markham valleys in Madang and Morobe provinces. All these developments are based on a nucleus estate and smallholder (NES) model, in which a commercially operated estate produces oil palm and also provides a market, processing and technical services for smallholder producers who cultivate oil palm on land adjacent to the nucleus estate.

Initially the smallholder component of the NES model was based on a land settlement scheme (LSS) system, which granted settlers 99-year leases over blocks of at least six hectares on land purchased from customary owners. However, no further land settlement schemes have been undertaken since the mid 1990s due to a shortage of land for further settlement and problems associated with the system. An important issue is the number of people living on blocks of a fixed area. Population density on blocks in the Hoskins LSS has risen from 6 persons/block in the early 1970s to 13 persons/block in 2000, and it is predicted that there will be 20 persons/block by 2011. This rising density is leading to a number of problems, including social instability, conflict over allocation of labour inputs and income, and disputes over inheritance of the blocks.

The existing LSS system has been supplemented by the village oil palm (VOP) system, which provides smallholders with blocks of two or four hectares on customary-owned land, with a Clan Land Usage Agreement giving the blockholder security of tenure and usage rights over the land. The three oldest NES developments, at Hoskins, Bialla and Popondetta, have nucleus estate, LSS and VOP components, while the newer NES developments in New Ireland and Milne Bay provinces have only nucleus estate and VOP components.

With no further land available for land settlement schemes since the mid 1990s, many migrants have entered into informal arrangements to access customary land in the oil palm-growing areas of West New Britain Province. These arrangements are known as customary purchase blocks. Such plantings were providing a growing proportion of fruit from smallholders for the mills in the Hoskinsarea by 2007.

The latest trend in oil palm development on customary-owned land is for landowning groups to form companies that lease customary land to oil palm plantation companies in exchange for rent and royalties. This system is known as the mini estate system. It is used by New Britain Palm Oil Limited, Higaturu Oil Palms, Milne Bay Estates Limited and Poliamba Limited in West New Britain, Oro, Milne Bay and New Ireland provinces respectively. Most new plantation development since the late 1990s has been on customary land, with extensive plantings in West New Britain Province in particular using this form of land tenure.

Distribution of production and planting

Both smallholder and plantation production are dominated by the Hoskins project area, which, in 2007, contributed more than half of total national production. Popondetta and Bialla are the next most significant project areas in terms of production, followed by Milne Bay and New Ireland. Although the Hoskins project area accounts for the greatest volume of smallholder production, the Bialla and Popondetta project areas have the largest smallholder components as a proportion of total NES production.

In 2007, 70 000 ha (55% of the total area) was planted to oil palm on plantations (including mini estates) and 58 000 ha planted on smallholdings (distributed between 5100 LSS blocks and 12 400 VOP blocks). In 2007, the Hoskins project area accounted for half of the total area planted to oil palm on plantations. Hoskins also had the largest area of smallholdings, although Popondetta and Bialla also had significant areas of smallholder oil palm plantings.

Levels of production

Exports of crude palm oil have increased exponentially since the early 1970s, because of an expansion in both smallholder and plantation production. During the 1980s, smallholder and plantation production of oil palm fruit were approximately equal. However, the establishment of the NES project areas in Milne Bay and New Ireland provinces, which have relatively insignificant smallholder components (4% and 14% of production in 2007 respectively), has caused plantation production to increase at a greater rate than smallholder production since the early 1990s. Plantations continue to dominate production: in 2007 they accounted for two-thirds of total national production.

The volume of fresh fruit harvested has continued to set new records in most years, exceeding two million tonnes for the first time in 2006. More than 360 000 tonnes of palm oil with an export value of K430 million was extracted from this fruit. The provisional value in 2007 (K670 million) is much greater, the outcome of particularly high world prices and increased production.

Yield of fresh fruit bunch per hectare varies between locations and over time. However, accurate comparisons are not possible because data on area planted include both mature and immature palms. Thus yields calculated from the total production and total area planted underestimate yield from mature palms. Nevertheless, available data indicate that smallholder yields are considerably lower than those for plantations. An average yield for mature plantation palms is about 30 t/ha; for settler blockholders it is about 18–20 t/ha; while village oil palm is less again at about 10 t/ha. There are considerable yield data from experimental plantings at Dami in West New Britain Province. Experimental yields are typically 30–32 t/ha and up to 40 t/ha.

Processing, exporters and markets

Each of the NES project areas has at least one palm oil mill, which process fresh fruit bunch (FFB) produced on both plantations and smallholdings. The FFB is processed to produce crude palm oil and palm kernel. Three of the five project areas also have facilities to further process palm kernel into palm kernel oil and palm kernel expellent.

New Britain Palm Oil Limited (NBPOL), which operates the Hoskins NES, is one of only a handful of oil palm producers in the world that operates commercially viable breeding and germplasm export programs. In 2007, about 4 million seeds were sold by NBPOL. These are supplied to all the plantation operations in PNG and exported to a number of countries, particularly Indonesia, but also to Malaysia, Sri Lanka, Thailand, the Philippines, Honduras, Cameroon, Solomon Islands and Vanuatu. Export of seed generates significant income for the company. Demand from Indonesia is especially large and NBPOL anticipates exporting about 20 million seeds in 2008.

The NES companies maintain a monopoly on purchasing FFB from smallholder producers. Prices are calculated according to a formula devised by the PNG Palm Oil Producers’ Association. The formula is based on export prices, and the transport costs and oil palm extraction rates of each NES project area. Prices paid to smallholder producers therefore vary among project areas. A large number of smallholder producers have received credit from the Rural Development Bank or from the NES companies, and repayments are deducted from the payments that smallholders receive for fruit.

The European Union is the sole export market for PNG’s palm oil, with the United Kingdom the biggest buyer.

Future prospects

The area planted to oil palm continues to increase as existing projects expand and new projects commence. New Britain Palm Oil Limited is undergoing an accelerated planting program, with 3000–5000 ha of new plantings planned each year for several years. This company has announced plans to increase its plantings in PNG to about 65 000 ha. The new plantings are on the north coast of West New Britain Province on the Talasea Peninsula and west of there between the Kulu and Via rivers. Land is accessed through agreements with local landowning groups, and palms are planted on both plantations and in village-operated blocks. Hargy Oil Palms Limited is also increasing plantings in the Bialla area of West New Britain. As well as these formal arrangements for new plantations and village oil palm, it is likely that the area planted under informal tenure arrangements by migrants in West New Britain, and possibly elsewhere, will continue to expand rapidly while the price remains high.

A number of other projects have commenced in PNG in recent years. Ramu Agri-Industries Ltd began planting oil palm in the Ramu Valley in 2003, and had planted 6500 hectares by early 2008. A mill with a capacity of 25 000 tonnes of crude palm oil per year commenced processing fruit in early 2008. An associated village oil palm scheme in the Markham Valley in Morobe Province commenced in 2006, with initial plantings of 100 ha, with 2 ha per household. The village component in Phase 1 of the project consists of 750 ha and can be expanded to 1500 ha.

Plantings commenced by 2007 in several other smaller projects in the Bereina area of Central Province (Mekeo Hinterland Oil Palm) and in the Aitape and Bewani areas of Sandaun Province. Feasibility studies for further projects have been conducted in other locations, including on the Sepik Plains north of the Sepik River in East Sepik Province, near Madang town, and on north-west Bougainville Island.

Oil palm is PNG’s most efficient agricultural industry, with yields among the highest in the world. The global price rose rapidly from a low point in 2001, to about US$430/tonne in 2004, and had climbed to US$1100 by early 2008. Recent increases have been in response to strong demand by developing countries, particularly China, India and Pakistan; a slowdown in global production growth in 2007; and increased use of competing vegetable oils for biofuels. The World Bank predicts that the price will peak at about US$900/tonne in 2008 and will then decline until 2015. These prices will be more than sufficient to provide good returns to the efficient PNG oil palm industry.

Given current and future plans for expansion, PNG production is likely to continue to increase in the medium term. The high prices being realised in 2007 and 2008, and possibly beyond, mean that palm oil will continue to generate more export income for PNG than any other export crop. However, the limited availability of suitable environments for oil palm is likely to restrict further expansion after around 2030.

Rubber in Papua New Guinea

Rubber is a minor cash crop in a limited number of PNG locations. From 2004 to 2006 rubber generated average export earnings of K19 million per year, which was 1% of the value of agricultural exports in this period. In 2007 exports were worth K24 million. The significance of rubber in the economy has declined from the 1950s, when rubber exports made up around 12% of agricultural exports.

Natural rubber is used for many household and industrial purposes, most importantly the manufacture of motor vehicle tyres and tubes. Other uses include the manufacture of window parts, various items used in engines (belts, hoses, dampeners), gloves, toy balloons, adhesives and rubber bands.

In PNG rubber is grown from near sea level up to about 700 m altitude, in environments where mean annual rainfall ranges from 1500 mm to over 5000 mm. Production is non-seasonal.

Adoption and history

Commercial rubber was first planted in PNG in 1903. Most production was in the Australian Territory of Papua (now the Southern Region of PNG). In German New Guinea, attempts to build a rubber industry were based on assam rubber (Ficus elastica), which is inferior to para rubber (Hevea brasiliensis). Consequently, very little rubber was produced in German New Guinea.

In Papua, plantations were first developed at Galley Reach, Sogeri and Cape Rodney in Central Province and in the Kerema area of Gulf Province. They subsequently expanded into the Kokoda area of Oro Province and parts of New Ireland Province. The principal exports from Papua in the 1930s and 1940s were copra and rubber, and rubber contributed almost 30% by value in the 1930s.

Prior to World War II smallholder rubber planting was confined to a few villages in Oro Province. The Department of Agriculture, Stock and Fisheries (DASF) promoted the development of village rubber production in the 1960s, particularly in Gulf and Western provinces. Between 1964 and 1970 smallholder rubber planting was also promoted on settlement and resettlement schemes in Central Province; at Gavien near Angoram in East Sepik Province; and at Murua in Gulf Province. As a result, the number of smallholder and village rubber producers increased from less than 2000 in 1970–71 to around 3300 in 1976–77. These schemes were not associated with plantations.

Distribution of production and planting

Rubber has been grown and produced in eight lowland provinces. In 2005, 4100 ha was planted to rubber on settlement schemes, 4500 ha in villages, 9500 ha on plantations and 50 ha at the DASF Bisianumu rubber experiment station. Most production in 2007 was from Central and Western provinces, with smaller amounts coming from East Sepik, New Ireland, Gulf, Oro and Manus provinces. Currently only about one-third of PNG rubber trees are tapped.

Thus, settlement scheme and village-level rubber plantings account for about half the total area of land planted to rubber, with the plantation sector making up the rest. One settlement scheme, Cape Rodney, has 80% of the total area planted to rubber in settlement schemes. Western Province has most village plantings, almost half the total area of village rubber. The Galley Reach Holdings Ltd plantation in Central Province (owned by the Belgian company SIPEF) has 60% of the total area of plantation rubber, and is the only plantation presently producing rubber.

Levels of production

Rubber exports were in the range 1000–2000 tonnes/year between 1936 and 1951, except in 1943 when production was disrupted by World War II. After the war, rubber production continued to be dominated by the plantation sector, with production, measured as exports, rising steadily to over 6000 tonnes in 1970.

A significant decline in production followed in the 1970s due to stagnation in the plantation sector and still insignificant smallholder production. The decline of the plantation sector was attributed to the continued use of clonal seedling planting material, rather than higher-yielding bud-grafted material; increased costs of production, particularly labour costs; uncertainty caused by land disputes and the threat of compulsory government land acquisition; and a high turnover of workers and resultant poor tapping standards that reduced the economic life of trees. The area of rubber on plantations declined dramatically after 1970, with several plantations cutting out rubber in favour of other enterprises, such as beef cattle.

Smallholder production increased steadily during the 1980s and by 1990 had overtaken plantation production. Between 1992 and 1996 a sharp increase occurred in smallholder production that coincided with increasing export prices for rubber. The promotion of rubber in the Kiunga area of Western Province by North Fly Rubber Limited also contributed to the significant rise in smallholder production during this period. Total smallholder and plantation annual production reached an all-time high of 7000 tonnes in 1996.

This was followed by a sharp decline in production in 1997, due to a fall in export prices and other factors which adversely affected smallholder production, including the closure of the processing factory at Gavien in East Sepik Province following damage by fire; low production at Kiunga in Western Province after large compensation payments from Ok Tedi Mining Limited to people living downstream of the mine; and the 1997 drought and very low water levels in the Fly River in Western Province that effectively paralysed the transport of cup lump rubber from Balimo and Lake Murray to the factory at Kiunga, a distance of more than 1300 km. Production remained 4000–5000 tonnes/year from 1997 to 2007, divided evenly between smallholders and plantations.

Although settlers on rubber settlement schemes often produce little or no rubber, they are active agricultural producers and derive significant income from the sale of fresh food and betel nut. Typical are the Murua scheme in Gulf Province, Cape Rodney in Central Province and the Gavien scheme in East Sepik Province, which produce food and betel nut for urban markets.

The average yield of cup lump rubber by village producers in the Kiunga area is about 650 kg/ha (400 kg/ha processed rubber). The best producers obtain up to 1650 kg/ha cup lump (1000 kg/ha processed rubber). Planting material with higher yield potential of over 2000 kg/ha of processed rubber has been distributed by North Fly Rubber Limited in Western Province over the past ten years. A 1949 survey of plantations in Central and Oro provinces recorded average yields of 450 kg/ha of processed rubber, a similar yield to that currently obtained at the Galley Reach Plantation near Port Moresby.

Processing, exporters and markets

Most rubber produced in PNG is initially extracted on-farm as cup lump rubber and is then processed into PNG Certified Rubber 10. Three factories currently purchase and process cup lump rubber; at Doa Plantation (at Galley Reach west of Port Moresby), Moreguina (near Cape Rodney, south-east of Port Moresby) and Kiunga (Western Province). Galley Reach Holdings Ltd buys cup lump rubber from elsewhere in PNG, transports it to Port Moresby and processes it at its Doa Plantation factory. This company produced about 85% of total rubber exported in 2006. Current government policy is that only processed rubber should be exported, but it does not have the power to ban the export of unprocessed cup lump rubber.

Old rubber trees provide high quality timber suitable for making furniture. The timber can be harvested after economic tapping ceases, which is at about 35 years after planting. Sales of old rubber trees for timber increase the economic viability of rubber production.

Most rubber produced in PNG is exported to Europe, particularly to Germany, France, the Netherlands and Belgium.

Future prospects

Following historical lows in world rubber prices in 2001, natural rubber prices staged a remarkable recovery. By 2007, prices were about four times as high as they were in 2001. High oil prices have increased the cost of making synthetic rubber and strong demand for vehicle tyre production has emerged, especially from China. Markets now favour natural rubber and firmer prices can be expected for the next few years. The main future uncertainty in the rubber market is the price of crude oil, which affects the competitiveness of synthetic rubber. Primary constraints on the PNG rubber industry are the poor state of transport infrastructure and the general lack of financing for new planting. Low returns to labour also limit smallholder interest in rubber.

Significant new plantings have been made in recent years only in Western Province. More than 2700 ha of smallholder rubber has been planted in the Kiunga area and over 1000 ha (out of a target of 2200 ha) in the Lake Murray area since 1999. New plantings are planned in the Bosset, Suki and Balimo areas in the southern part of Western Province. There are plans to increase plantings to a total area of 10 000 ha in the province, with new plantings in the north, middle and south Fly River areas.

The expansion in Western Province is supported by North Fly Rubber Limited, Ok Tedi Mining Limited and the PNG Sustainable Development Program. A total of almost K20 million has been provided, directly and indirectly, from the revenue of the Ok Tedi copper mine in the past decade. The transport costs of moving seedlings from Kiunga to Lake Murray, Suki and Balimo, cup lump rubber from these areas to Kiunga for processing, and processed rubber to a main port for export, is heavily subsidised. Without these subsidies, rubber production in Western Province is unlikely to be economic unless further large areas of high-yielding rubber are planted within the next decade to create economies of scale.

The PNG National Agriculture Development Plan has a goal of rubber production of 29 000 tonnes by 2016, more than seven times production in 2007. If the higher prices of 2007 and 2008 continue, it is likely that rubber production in PNG will increase, but the target of 29 000 tonnes in less than a decade is completely unrealistic. Since 1992, no significant area of smallholder rubber has been planted other than the heavily subsidised plantings in Western Province.